The financial world we live in is just as wild, if not more, than the mountains and woods we walk through. We are told that the fundamentals of our economy are strong, but we can feel that something is wrong. My unique financial background and survival passion make Financial Survivalist and excellent place to learn and share.

Monday, March 19, 2012

Exchange Traded Funds VS Mutual Funds

The most common kind of private investing is in Mutual Funds (MFs) through an employer provided 401k. Unfortunately, most employer provided 401k plans have extremely limited investing options. These limitations and others, have caused many private investors to seek more investments options through IRA or other trading accounts.

One of the many investment options is ETFs or Exchange Traded Funds. But how do ETFs compare to Mutual Funds? Below are some unique characteristics of each.

Exchange Traded Funds
  • ability to sell short
  • ability trade on margin
  • ability to day trade
  • ie trades like a stock
  • minimal fees
Mutual Funds
  • tax liability possible even if money is only lost
  • no control over capital gains
  • fees up to 3% common
  • multiple restrictions on how MF can allocate funds: in what and how much they can invest
  • the price is not determined until the end of the trading day (no day trading)
Maybe this picture can help as well.
As you can see, ETFs have several advantages over Mutual Funds. As far as I can find, the only disadvantages of ETFs are shared by Mutual Funds.

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